Will Apple's record-breaking R&D spending pay off with the M3 chip series?

Jerry Yang; Jerry Chen, DIGITIMES Asia 0

Credit: Apple

Apple's recent introduction of the M3 chip series has intensified the competition in the global PC market, posing a formidable challenge to Intel's PC camp. However, this move aimed at expediting the complete transition of its Mac lineup to Apple Silicon has come at a substantial cost.

Recent reports indicate that the tape out and design phases alone for the M3 series amounted to approximately US$1 billion. While Apple's revenue and net profit exhibit signs of slowing down, the company's persistent and escalating investments in research and development across recent years underscore the company's unwavering commitment to invest significantly in R&D, driven by the pursuit of future growth prospects.

In the first quarter of the 2023 fiscal year, Apple's R&D spending reached an unprecedented pinnacle at US$7.709 billion. For the past four quarters, Apple's R&D spending has been hovering around $7.5 billion. However, the year-on-year growth rate has witnessed a gradual tapering, with the latest quarter only displaying an 8.1% increase - the most modest increment in recent memory, yet still maintaining a sizable US$7.307 billion.

Apple's CEO addresses soaring R&D investments

During Apple's recent earnings conference for the fourth quarter of the 2023 fiscal year, CEO Tim Cook fielded inquiries regarding the notable upsurge in the company's R&D expenditure. This uptick accounted for a hefty US$8 billion increment over the past two years, representing more than one-third of Apple's staggering revenue growth, which clocked in at around US$18 billion during the same period.

Cook delved into the driving forces behind this significant upswing in R&D investments, attributing it to Apple's commitments in areas such as Vision Pro, AI, and the realm of machine learning. These strategic endeavors, he explained, were intrinsically linked to Apple's ongoing ventures in silicon chip technology and the ongoing transition involving Mac and other silicon chips. Cook also asserted Apple's R&D spending remains highly competitive in the broader fiscal context, though he refrained from delving into specifics.

Furthermore, Apple's CFO Luca Maestri, noted that some of the investments in R&D have contributed to expanding Apple's profit margins.

Over recent years, Apple's R&D expenditure ranged from US$5.1 billion to US$5.8 billion per quarter in the 2021 fiscal year. In 2022, this figure climbed to a range of US$6.3 billion to US$6.8 billion per quarter. For 2023, Apple's R&D expenditure has surpassed US$7 billion, maintaining a range of US$7.3 billion to US$7.7 billion per quarter. These figures illustrate that Apple's R&D expenditure has been on a sustained upward path over the past three years, with it currently firmly holding at a level exceeding the US$7 billion mark.

Apple's total R&D expenditure for the 2023 fiscal year stands at nearly US$30 billion, a nearly 14% increase from the previous year's US$26.251 billion, and a substantial 36.5% growth compared to 2021. Over the past five years, Apple's R&D spending has surged from US$16.217 billion in 2019 to an impressive US$29.915 billion, a growth of nearly US$13.7 billion.

Source: Apple, compiled by DIGITIMES Asia, November 2023

M3 chip reality check

Despite Apple's ample investment in the M3 series, early benchmark tests have not quite lived up to the company's claim of being "scary fast." As reported by HotHardware, Geekbench 6 scores for the 16-inch MacBook Pro with the M3 Pro chip are in line with the M2 Max in terms of speed and is only marginally quicker than the M2 Pro. The stark contrast between Apple's performance promises and these preliminary tests has left many pondering if the reality will match the anticipation.